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Yahoo to Pay $2.7 Billion for Breach of Contract – Ouch!

Sites include . Published on December 2nd, 2012. Written by Anthony West.

As court fines come, they don’t get more draw-dropping than $2.7 billion and Yahoo has the unenviable task of coming up with that much cash as ordered to by a Mexico City court.

The fine is connected to ruling which went against the search and media company for allegedly breaching a contract between it and a Mexican Yellow pages outfit. Apparently Yahoo had a deal to work in partnership with Ideas Interactivas and its parent company, Worldwide Directories. The company alleged among other things that Yahoo “Breached contract, breached promise, both of which resulted in lost profits arising from contracts related to a yellow pages listings service.” Yahoo of course felt otherwise and decided to let the courts adjudicate.

Well adjudicate they did and a Mexico City court handed down the judgment for $2.7 billion.

How did it all get so heavy and deep for Yahoo?

The seeds of this multi-billion dollar judgment were sowed back in 2003 when Yahoo signed a deal with Ideas Interactivas to launch a portal displaying business listings for local Mexican businesses. The created website was dubbed Yahoo Paginas Utiles, however, nothing was ever done to develop the page. Since that fateful deal was signed www.paginasutiles.com.mx, has been a barren wasteland of empty pixels—essentially a parked page.

One can see how such deal would have netted both sides significant revenues; after all, back in 2003 Yahoo was pretty much neck and neck with Google in terms of search dominance. According to an article published at the time of the deal, Yahoo was supposed to have facilitated the circulation of 800,000 free copies of the directory in print form, followed by 1.7 million units thereafter. Somewhere along the way, Yahoo dropped the can and now it seems it will have to fork out some cash.

Can Yahoo afford it?

Yahoo plans to “vigorously pursue all appeals,” of course, but many are doubtful Yahoo would be able to honor such a judgment. For one thing the company only made $1.2 billion in revenues at the end of Q3 and only $226 million of that were actually profits. Even if Yahoo mounts a protracted legal challenge, the company is unlikely to mount the sort of recovery that new CEO Marissa Mayer is promising.

Things are already bad for Yahoo who has changed CEOs multiple times in the last five years. Its search partnership with Bing seems destined for dissolution and its other businesses are struggling to make the cut. Yahoo’s homepage, once a beacon for anyone serious about breaking news and quality content has become fodder for gossip mongers. This fine just adds to the burden of an already beleaguered company and one wonders when it will break—literally.

The only thing Yahoo has on its side right now is time; the planned appeals include an 8-K filed with the SEC and no doubt other complex legal manoeuvres will ensue. The ruling is the second such high-profile ruling this year outside of U.S. jurisdictions and it will be interesting to see how this one plays out.

Do you think Yahoo will be able to shake this $2.7 billion judgment? Share your thoughts below (even if you aren’t a lawyer).

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